The Brideshead pages

Monday, August 8, 2011

Sort of political Monday

Dear Patty Myers

Over the weekend I was sent what purports to be a letter from an angry person about to retire named Patty Myers responding to Senator Alan Simpson on the cost of social security. The letter begins as follows:

Hey Alan, let's get a few things straight..

1. As a career politician, you have been on the public dole for FIFTY YEARS.

2. I have been paying Social Security taxes for 48 YEARS (since I was 15 years old. I am now 63).

3 My Social Security payments, and those of millions of other Americans, were safely tucked away in an interest bearing account for decades until you political pukes decided to raid the account and give OUR money to a bunch of zero ambition losers in return for votes, thus bankrupting the system and turning Social Security into a Ponzi scheme that would have made Bernie Madoff proud.

And it goes on and on and on. Number three is where she goes awry. I suspect that Patty Myers doesn't actually exist but here is how I would answer her.

Dear Patty Myers,

Let me clear up a basic misunderstanding you have here. Your social security payments were not paid into any account. Social security payments have always gone into general government revenues. They have never earned interest. The system has always depended on there being more people paying into it than were drawing money out of it. Every penny you ever paid in Social Security deductions was already spent years ago.

That is not unlike a Ponzi scheme in that Ponzi schemes also depend on more people paying into them than drawing out. It may interest you to know, Ms. Myers that people have been raising doubts about the viability of such a scheme since it was first proposed. They were generally attacked as being “mean-spirited” and “uncaring” for doing so.

There was something called a "social security lock box" but it was actually just an accounting trick and it was dreamed up decades after the fact. You may have read that the USA is in debt to the tune of $14 trillion. Well that number doesn’t include the money the government has committed to pay out for Medicare, Medicaid and Social Security. If you include those amounts, the national debt would be $75 trillion!

You have clearly never bothered to educate yourself about even the smallest details of how the system actually works and now you are getting outraged at the people who are trying to fix it.

The nature of social security has also changed over the years. When you began paying into the system 48 years ago, it was understood to be social security. That is, it was understood to be a system that would help protect the weakest and most vulnerable from destitution when they were no longer able to work. The assumption had been that most people would provide for their own retirement by saving or that other family members would help take care of them after retirement.

That all changed with the post-war generations including you (you are a baby boomer born in 1947). They and you repeatedly voted for governments that expanded Medicare, Social Security and other assistance programs until they became not security for people who really needed them but rather entitlements that people think they are owed as you clearly believe you are given your angry response here.

Incidentally, your generation, the baby boomers, have collectively proven to be the worst savers in history and when you factor in the government programs you have demanded but not been willing to pay for, you have lived beyond your means your for your entire lives.

In doing so, you and the governments you elected loaded more and more debt onto future generations. They added to the cost of employment with mandatory employer contributions thereby making the structural unemployment levels higher. They developed a system that eroded public virtue because people began to think that the government would take care of them when they didn’t have a job and when they retired and so they were much less likely to save for these things. I should point out that there were also politicians who pointed this out in the 1960s, 1970s, 1980s and 1990s. In repayment for doing their job and arguing for fiscal prudence, these poor politicians were subjected to vicious personal attacks by other politicians and the press. They were accused of not caring.

And no Patty, it’s not your money. When you give money to the government it becomes government money to use as elected officials see fit. The entire social security system could be cancelled tomorrow by a simple act of Congress (as it could be cancelled here in Canada by a simple act of Parliament). Your social security is entirely dependent on the charity of others.

In that regard, you might consider the plight of all those kids in their twenties entering the toughest labour market since the 1930s. Because they will very shortly be running things and one of the tough decisions they are going to have to make is whether to continue to sustain a system that they probably will never see any benefit from.

In conclusion Patty honey, two words ...

UPDATE: There has been some pushback in the comments from someone who does not understand the nature of the "fund" in question. To get a better grasp of how this ultimately will all go wrong, read this.

13 comments:

"you might consider the plight of all those kids in their twenties entering the toughest labour market since the 1930s"

Wait a minute. Those who ran up massive debt (and continue to do so) haven't minded putting those kids in this mess. Patty and the rest of us have been doing all we can for those kids. It's the government that has been mismanaging money by paying off its special interest groups, favored corporations and unions.

"And no Patty, it’s not your money. When you give money to the government it becomes government money to use as elected officials see fit."

Hey Jules, the money is taken from us. We don't "give" money to the government; it's collected through taxation. Try not "giving" them money and see where it lands you.

I share your anger at payoffs to special interest groups, corporations and unions but that spending is tiny compared to entitlement programs such as medicare and medicaid. Entitlements are the primary reason the government is in debt and anyone, such as Patty here, who has been standing around screaming "don't much my entitlements" at politicians is a big part of the problem.

Second point, I quite agree with you that we don't give to the government but that it takes. The problem is that Patty Myers doesn't get that. Look at her own words here:

"My Social Security payments, and those of millions of other Americans, were safely tucked away in an interest bearing account for decades ..."

Well, no they weren't. Every penny she ever paid went straight out the door right away (most of it in entitlement spending her generation voted for).

The government has been going through cash like cattle let loose in a field of ripe corn for decades now and it was the voters' responsibility to notice this was happening and do something about it. They didn't and now everybody has to pay.

While my info in purely anecdotal, my father has referred many times to "when the S.S. fund was transferred to the General fund" as has my CPA tax preparer, leading me to believe that you are wrong about it having never been put aside.

There is a "thing" called the "Social Security Trust Fund" and there is even an accounting of what is in it. But there is no actual fund anywhere. Imagine you decided to help your daughter save some money and every week she gives you $10 and you put it in your main chequing account. To keep track of the amount you owe to your daughter, you keep a little notebook where you keep a running total. Meanwhile, though, you spend all the money that is actually in the account and run up debts of $15 K on your credit card and get a $400 K second mortgage on your house. The notebook still says that your daughter's money is separate but it doesn't actually exist anywhere. You just hope that you'll have enough money to pay her the promised amount when it comes due. That's what the government has done with your pension contributions.

A: Yes they do. By law, the assets of the Social Security program must be invested in securities guaranteed as to both principal and interest. The Trust Funds hold a mix of short-term and long-term government bonds. The Trust Funds can hold both regular Treasury securities and "special obligation" securities issued only to federal trust funds. In practice, most of the securities in the Social Security Trust Funds are of the "special obligation" type. (See additional explanation from SSA's Office of the Actuary.)

The Trust Funds earn interest which is set at the average market yield on long-term Treasury securities. Interest earnings on the invested assets of the combined OASI and DI Trust Funds were $55.5 billion in calendar year 1999. This represented an effective annual interest rate of 6.9 percent.

The Trust Funds have earned interest in every year since the program began. More detailed information on the Trust Fund investments can be found in the Annual Report of the Social Security Trustees and on the Actuary's webpages concerning the Investment Transactions and Investment Holdings of the Trust Funds.

Yes, the money in the SSTF is "invested" in government securities. (Which is another way of saying that the government lends the money to itself so that it can spend it. And it has spent every last penny it has ever lent itself.) But if knowing that the government keeps track of the interest owed on the money it has lent to itself makes you feel better, go with it.

You should also keep in mind that the phrase "guaranteed by law" doesn't quite carry the same weight when applied to the government that makes the laws in the first place. It can change those laws.

In the end, though, Social Security payments are dependent on the ability and willingness of the government to pay them out. There is nothing scandalous in that by the way; that's the only way the system could possibly be set up. The delusional thing is to think there could be some special locked-up fund that guarantees that the money "I payed in" is safe.

I'd add this: If you think it through, the whole idea of securing social security is a monstrously selfish thing. It's just an attempt to make sure "we get ours", a way of trying to force the government to take care of us no matter what it costs anybody else.

By the way, I should add, just so we're clear what we are talking about here, that the trust fund is supported by surpluses from the program. Most of the money you pay into social security in a given year just goes right out the door to cover payments to SS recipients. The program remains primarily a pay-as-you-go system.

Jules you are making patty's point for her. "Yes, the money in the SSTF is "invested" in government securities. (Which is another way of saying that the government lends the money to itself so that it can spend it. And it has spent every last penny it has ever lent itself.) But if knowing that the government keeps track of the interest owed on the money it has lent to itself makes you feel better, go with it."the money that was colected from her was spent by the Gov much like she said. it was supposed to be in a "fund" etc but it was raided by greedy dopes to fund everything it was not supposed to. as to people not putting money away or todays young not saving well sweets no one has much to save and if you remember what did Prez bush say when we were just getting into the results and throes of his spending spree to the american people help out the economy go spend money.also its not an entitlement if the government made a deal with us the public you put money in when your of working age and when you retire you can thats a deal that they are backing out of. lastly did I misunderstand you are you Canadian? if you are you really dont have a dog in this fight do you?

1.Patty's point is more or less what you say: " it was supposed to be in a "fund" etc but it was raided by greedy dopes to fund everything it was not supposed to."

2. My point that there never was a fund to be raided. It was sold as a if there was a "fund" to people who, like "Patty", don't look very deeply into things (low-information voters in the current lingo) but that was always a con game.

3. The important thing to grasp is that you can't blame this on "greedy" politicians who later came along and robbed this "fund" because you can no more rob this "fund" than you could kiss an imaginary girlfriend.

4. In Patty's imaginary version of reality, the ultimate problem is greedy politicians. In fact, the real problem has always been gullible voters.

I am afraid Patty is at least half right in where she thought her social security money was going, and still is. It goes to the social security administration, then is invested in government paper of various sorts. Seems like that is what the original laws called for, and that part has NEVER been changed.

Uncool quote of the moment

Over-sentimentality, over-softness, in fact washiness and mushiness are the great dangers of this age and of this people. Unless we keep the barbarian virtues, gaining the civilized ones will be of little avail. –Theodore Roosevelt